Total volume of placements of corporate and regional bonds in the primary market was RUR 515.4 bln (investments of banks and companies made RUR 464.bln), as compared with approximately RUR 311 bln in 2005. Hence, one may see a substantial increase in primary offering in the market of corporate and regional debt. In the background of general growth of issuers’ activity in 2006, auctions were arranged more regularly throughout the year. For example, the maximum vol ume of placements of corporate and regional bonds in primary market was re corded in December (like a year ago) to amount to nearly RUR 85.8 bln (as op posed to nearly RUR bln in December of 2005), while the minimum one amounted to RUR 13.9 bln in May (as opposed to RUR 9.05 bln in May of 2005). Therefore, the maximum and minimum volumes of placements of corporate and regional bonds in primary market were recorded in 2005 in December and May accordingly.

Factors that Have an Effect on the Russian Stock Market Dynamics In 2006, the Russian Stock Market was governed by a series of factors, which con ventionally can be broken down into the groups as follows :

• Internal political situation;

• Relations with international financial institutions and organizations;

• Situation in the international financial markets;

• Situation in the world raw material markets (especially oil);

• Corporate news.

Each of the above groups of factors had a different effect on developments in different segments of the Russian financial market during the year of 2006. In spite of the fact that most of these factors have already been mentioned in the analysis of different segments of the Russian financial market, it is appropriate to focus on Section Monetary and budgetary spheres them in detail, and the situation in the world market of raw materials was consid ered in Secton.

Internal political situation. Throughout 2006 internal political situation in Russia remained quite favorable for financial markets. First of all, it should be noted that published statistical data indicated the growth of Russian economy. Certain problems were observed in the first half of the year, caused by accelerated infla tion, exceeding estimated parameters. It effected inflation expectations, and as a result, made an impact on the yield of stock market instruments. However, in the second half of the year the inflation was taken under control and some officials of the government and Central Bank expressed a hope to restrain the inflation within the estimated limits.

Another significant factor of financial market dynamics was the growth of the world market oil prices. Like a year ago, that factor promoted not only further up grading of the RF budget indicators, but higher deductions to Stabilization Fund as well, which were partially addressed to final redemption of the Russian debt to Paris Club of Creditors.

Moreover, during the year there was no news on tax claims to large Russian companies, like it happened in 2004–2005. Any claims of tax authorities to individ ual taxpayers were settled without conflicts. The government maintained its policy of control over some sectors of economy. Thus, at the end of the year audits were performed in TNK BP company, participating in PSA projects. According to official information, the basic reason for close attention to that company was violation of ecological legislation. However, one can presume, that PSA projects are rather at tractive assets, but initial provisions of those agreements, could be unacceptable to the present government of the country.

Finally, one should not ignore a number of decisions, adopted on structural reforms, implemented in the country. Thus, the President has informed on the need to create conditions for involvement of domestic and international investments in the national electric power section. In autumn a successful discussion of the reform implementation took place, which can also be regarded as one of the support fac tors to the domestic market. Moreover, some comments were occasionally made on the need for Svyazinvest privatization, which is expected by the market partici pants for a long while and is considered as a factor of growth of the shares of tele com companies.

Relations with international financial organizations. Relations between Russia and international financial organizations developed successfully enough throughout the entire year, which depended largely upon favorable macroeco nomic situation in the country available over the last two years, and effective man agement of the Russian external debt.

For example, in July Fitch rating agency has upgraded the Russia’s sovereign credit rating denominated in foreign currency from ВВB to ВВВ+, Outlook Stable.

The Agency representatives have explained the upgrading by several reasons, one of them is prompt strengthening of Russia’s macroeconomic and financial posi tions due to high prices in the markets of raw materials, as well as decreased risks RUSSIAN ECONOMY IN trends and outlooks in government debt service. According to the Agency forecast, by the end of the year Russia will be an external net creditor for government debt in the amount of USD 200 bln, what will ensure considerable reserve for cases of negative market dynamics. In September another rating agency, Standard&Poor’s has upgraded the Russia’s long term credit rating, denominated in foreign currency, from BBB to BBB+, and that one in national currency from ВВВ+ to А–. The Outlook Stable. Ac cording to the Agency press release, that decision was based on the enlarged gold and foreign currency reserves of the RF, improved budget indicators of the enlarged government, as well as reasonable approach of the government to the problems of macroeconomic stability.

Another factor, confirming strengthening of the Russian companies’ positions is inclusion of their shares in the global stock indices. Thus, in 2006 Morgan Stanley Capital International agency has not only included Gazprom securities into the listing of bonds traded under index MSCI Russia, but was also upgrading its rat ing in the index.

Upgrading of Russia’s sovereign credit rating in 2006 was based to a great extent on successful policy in external debt management. Thus, in June the RF has completed negotiations on early redemption of the debt balance to Paris Club of Creditors in the amount of USD 22 bln. The transaction has been completed in August.

Situation in the international financial markets. The year of 2006 was characterized by a substantial improvement of the situation in the world stock mar kets. (See Table 37).

Making an analysis of the basic factors of dynamics, we should note, that the major ones were tightening of the US FRS monetary and credit policy, macroeco nomic news, dynamics of the world oil prices, corporate news, as well as geopoliti cal tension in the Middle East.

It should be mentioned, that the significance of the first factor has grown up in 2006. Within the first half of the year FRS has repeatedly raised the interest rate, which effected the quotations of the US securities. The decision on upgrading the interest rate was adopted on the basis of macroeconomic statistics, which re flected a stable economic growth, accompanied by accelerated inflation. An addi tional factor, provoking inflation, was a considerable increase of the world energy sources’ prices, whereas the US economy is dependant on oil and its products supplies. At the beginning of the year a group of corporations has published nega tive estimates of their productive and financial indicators, what has affected the stock market quotations. Moreover, certain negative impact was provided by Iran nuclear program. Inability of USA and Iran governments to find a compromise in creased the risk of economic sanctions on the part of US and other industrialized countries and even a probability of a military conflict. All those factors also affected the investors’ behavior.

As opposed to that, starting from July, macroeconomic statistics reflected some decline in economy and hence, reduction of inflation risks. With regard to that information, FRS has decided to sustain the interest rate. In view of that decision, many investors have reviewed their estimates of the interest rate and moreover, expected some decrease in case the trends of the end of the year stay in effect.

As concerns the stock markets of other countries, they have also grown as of 2006 results. Thus, the European stock indices grew some more than the US rates.

German aggregate stock market index DAX 30 gained 21.04 per cent within the year, French САС 40 –16.55 per cent. Upgrading of EU CB interest rate was one more factor, effecting the dynamics of the stock market. The situation in develop ing countries was even better, here the stock markets’ growth measured more than a dozen of per cent per annum in 2006. As a result, the Morgan Stanley’s aggre gate stock market index in developing countries grew by nearly 29.09 per cent.

In general, the markets of industrialized countries had a greater effect on the Russian stock market, when there was no essential domestic news or oil prices were stable. On the contrary, when there were some domestic news on both, busi ness or public sectors, they had a greater effect than external markets’ fluctua tions. It is the policy of the US Federal Reserve System that was the sole factor considered by investors from any country, which could have a medium term effect RUSSIAN ECONOMY IN trends and outlooks on market liquidity in the markets due to an outflow of major US funds and other in stitutional investors.

For example, late in March, Standard & Poor's, the international credit rating agency, decided to upgrade its long term credit rating of OAO Rostelecom from B+ to BB, Outlook Stable. Standard & Poor’s reported that the upgrade reflected strengthened financial positions of the company, based on high performance and low arrears. Standard & Poor’s has assessed OAO Rostelecom stable performance results, as well as efficient measures taken by its management in order to reduce company’s costs and retain leading market positions. Further reduction of debt load, as well as increase of disposable cash flow contributed to high liquidity of the company. Moreover, in May the company has announced that Standard&Poor’s has upgraded corporate management rating according to the national scale up to the level of RCM 6.2 and as per international scale to RCM 6. Total company rating is formed from the points, gained by separate components under 10 point scale.

Thus, according to the year results, the points, gained on “property structure and shareholders’ authority”, have been slightly lower, from 5/5.3 to 5/5.2 (where the first figure reflects the points under international scale, the second one – according to the national scale), as well as the points, gained under “Authority of financially 10.01.30.01.19.02.11.03.31.03.20.04.10.05.30.05.19.06.09.07.29.07.18.08.07.09.27.09.17.10.06.11.26.11.16.12.Section Monetary and budgetary spheres involved entities and cooperation with them” from 7+/7.5 to 7/7.3 points. The points, gained for “Financial transparency and information disclosure” were con firmed at the level of 6+/6.9. However, due to upgrading of Rostelecom rating un der component “Members and performance of the Board of Directors”, S&P raised the company rating from 5+/5.7 to 5+/5.9. Standard & Poor's agency has positively evaluated the level of information transparency of the company, introduction of a new position of Corporate Secretary of the company, activities of Committees un der the Board of Directors, in particular Audit Committee, implementation of fair bonus system for the company management. S&P has highly estimated commit ment of the company management to upgrade the standards of corporate man agement in compliance with international standards.

In 2006 OAO LUKOIL rating was revised twice. On April 13, the company was assigned by Fitch, the international credit rating agency, the rating of issuer of se curities, denominated in foreign and in national currency of BBB level and Fshort term rating; Outlook Stable. At the same time, the Agency has assigned BBB rating to the issue of OAO LUKOIL shares for the amount of USD 350 mln, issued by LUKinter Finance BV. The Agency stated, that Outlook Stable id based on high fi nancial stability of the company in future, ensured by sustained level of oil extrac tion and production, keeping up favorable price policy in the international oil market and gaining positions in the new markets, especially in the North America. On the other hand, adverse tax legislation, high export taxes and transportation costs as well as increased competition in the Russian market of oil products is a threat to the ratings.